GOVERNMENT'S DEBT SHOPPING: NEED OF TIME

Public debt or Govt Debt is the total amount borrowed by the government of a country. In the Indian context, public debt includes the total liabilities of the government (Both Central and State).

- Dr Divya Kumar Agrawal

Since the government relies heavily on market borrowing to meet its operational and developmental expenditure, the study of public debt becomes key to understand the financial health of the government and its ability to raise funds to improve the economy by increasing Government expenditure in current and post covid scenario.

Let's understand the public debt Facts in Indian Context:

The debt to GDP ratio is the metric comparing a country's public debt to its gross domestic product (GDP) and is a widely accepted parameter to understand and compare the health of the economy.

Debt to GDP= Total debt of the country/Total GDP of the country

The general principle is higher a country's debt to GDP ratio means higher is the risk of default. Delay in making payments by a country triggers the panic button of domestic and international financial markets.

As per Government of India report dated May 2020, Overall government debt to GDP ratio which includes the central govt debt and state govt debt as a percentage to GDP dropped marginally by 0.1% from 68.7% in fiscal 201718 to 68.6% or Rs 1.3 crore crores ( Rs 130 trillion) in FY 2018-19.

Overall government debt to GDP ratio of the central govt debt as a percentage to GDP dropped marginally by 0.1% from 45.8% in fiscal 2017-18 to 45.7% or Rs 86.73 lacs crores in FY 2018-19.

Who funds this Public Debt: In India, most of the public debt is funded by Commercial banks, insurance companies and RBI.

Interest Payments to Revenue Receipts

The ratio of interest payments to revenue receipts is another crucial indicator of debt sustainability. The ratio of interest payments to revenue receipts of the Central Government has remained in the range of 35.6 per cent to 37.5 per cent during 2011-12 to 2018-19.